About 40% of drug users who inject are already infected with Hepatitis C. Photograph: Mykel Nicolaou/Rex Features

Providing free needles and syringes to people who inject heroin and cocaine is a cost-effective use of NHS money, the government's medicines watchdog said today.

The National Institute for Health and Clinical Excellence (Nice) issued its first guidance on how harm reduction services for addicts should be run throughout England, suggesting combining non-judgmental needle exchange schemes with treatment to help users come off drugs.

Prof Mike Kelly, director of the institute's public health division, said there are about 200,000 injecting drug users in Britain. He estimated about 25% of users share needles, putting themselves at a greatly increased risk of being infected with Hepatitis C or HIV.

Kelly said: "The cost to the NHS of caring for someone who injects drugs is around £35,000 over their lifetime. From a societal perspective, the average [lifetime] cost rises to an estimated £480,000 when you take into account the high cost of crime including criminal justice costs."

About 40% of drug users who inject are already infected with Hepatitis C and their risk of death is 10 times higher than among the population at large.

If needle exchange schemes are run well, they can provide an effective conduit for doctors, nurses and pharmacists to gain direct contact with hard-to-reach groups – the first step towards encouraging them to seek treatment.

Providing injecting drug users with extra years of healthy life was cost-effective for taxpayers, said Nice.

Kelly added: "Keeping in check the epidemic of Hepatitis and maintaining HIV at its relatively low levels is an important aim that this guidance will serve."

Needle and syringe exchange schemes have been provided throughout England for more than 20 years. They provide injecting drug users with sterile equipment, needle disposal bins and advice on safer injecting practices. Primary care trusts (PCTs) have had discretion on how to run services to meet local needs.

The Nice guidelines include advice on how PCTs should tailor the service to encourage injectors to seek treatment by offering more accessible opening times and locations.

Dr Mathew Hickman, chair of the Hepatitis C prevention working group at the Advisory Council for the Misuse of Drugs, said: "Needle and syringe programmes are a critical component of public health action to prevent Hepatitis C infections among injecting drug users.

"Evidence suggests that a combination of interventions is most effective. This means that staff need to use the opportunity they have with injectors actively to promote and refer people into treatment, such as opiate substitution programmes."

Dr David Sloan, vice-chair of the Public Health Interventions Advisory Committee, said: "Although HIV rates remain relatively low among injecting drug users in the UK, bad practice, such as the sharing of needles among multiple users, makes these individuals extremely vulnerable to any future outbreak."